Fiat's Woes A Symptom Of Italy's Industrial Malaise

Automaker Fiat announced its commitment to remain in Italy after a meeting Saturday between the company's CEO and the country's president.

Fiat had threatened to shut down its operations in Italy unless it received additional state assistance. The crisis came at a time the entire country is undergoing a steep decline across all industrial sectors.

More than 100 years old, Fiat is the symbol of Italy's industrial revolution and it's the country's biggest employer. But sales in its most important market have plunged, and Fiat plants are operating at less than 50 percent capacity.

Fears that Fiat would shut down its Italian plants triggered charges of ingratitude, as the automaker has been the major beneficiary of massive state subsidies.

For years, the automaker and other big businesses were dependent on state-subsidized capitalism. They barely bothered to invest in research and development, yet they could survive without opening up to foreign investors.

But a decade of globalization and three years of the euro crisis have accelerated the country's industrial decay.

There's been no growth for a decade, and Italy has virtually lost its once-flourishing chemical industries. Its world-renowned textile and shipbuilding sectors have been cut to the bone. The last remaining steel plant in the southern city of Taranto has been partially shut down on magistrates' orders — it's obsolete and poses serious health risks.

On the island of Sardinia, Alcoa is abandoning a top-quality aluminum plant due to exorbitant energy costs, 30 percent higher than in the rest of Europe. Similar problems are afflicting the mining, electronic, transportation and home appliance sectors.

In the first six months of this year, industrial output plummeted by more than 7 percent.

Italy is also undergoing a wave of strikes, factory occupations and often-violent workers' protests. With unemployment soaring, the media have raised the specter of a return to the social tensions of the late 1960s that many analysts say fomented a long period of domestic terrorism.

In a further blow, Prime Minister Mario Monti has announced the economy is headed for a 2.4 percent contraction this year, twice the previous forecast.

Monti says that next year, there will be light at the end of the tunnel, but it's unclear how a recovery is possible given Italy's endemic problems: inadequate infrastructure, suffocating red tape, a justice system that moves at a snail's pace and widespread corruption.

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While the small Fiat 500s are selling in the U.S. faster than they can be restocked, the Italian automaker is threatening to shut down its Italian operations unless it receives state assistance. In this letter from Italy, NPR's Sylvia Poggioli reports the Fiat crisis comes at a time when the entire country is undergoing a steep decline across all industrial sectors.

SYLVIA POGGIOLI, BYLINE: Fiat is more than a hundred years old. It's the symbol of Italy's industrial revolution and it's the country's biggest employer. But sales in its most important market have plunged and Fiat plants are operating at less than 50 percent capacity. Fears that Fiat will shut down its Italian plants have triggered charges of ingratitude. The automaker has been the major beneficiary of massive state subsidies - the anomaly of Italian capitalism.

Fiat and other big businesses were dependent on state-subsidized capitalism. They barely bothered to invest in research and development, yet they could survive without opening up to foreign investors. But a decade of globalization and three years of euro crisis have accelerated the country's industrial decay. There has been no growth for a decade and Italy has virtually lost its once-flourishing chemical industries. Its world-renowned textile and shipbuilding sectors have been cut to the bone. The last remaining steel plant in the southern city of Taranto has been partially shut down on magistrates' orders - it's obsolete and poses serious health risks. And on the island of Sardinia, Alcoa is abandoning a top-quality aluminum plant due to exorbitant energy costs, 30 percent higher than in the rest of Europe.

Similar problems are afflicting the mining, electronic, transportation and home appliance sectors. In the first six months of this year, industrial output plummeted by more than 7 percent. Italy is undergoing a wave of strikes, factory occupations and often violent workers' protests. With unemployment soaring, the media has raised the specter of a return to the social tensions of the late 1960s that many analysts say fomented a long period of domestic terrorism. In a further blow, Prime Minister Mario Monti has announced the economy is headed for a 2.4 percent contraction this year, twice the previous forecast. But he claims that next year, there will be light at the end of the tunnel. However, it's unclear how a recovery is possible given Italy's endemic problems - inadequate infrastructure, suffocating red tape, a justice system that moves at a snail's pace and widespread corruption. Italy, even more than its Southern European partners, urgently needs to enact radical reforms and come up with a new industrial policy. Sylvia Poggioli, NPR News, Rome.